The Entrepreneurial Dialogues
State of Entrepreneurship
in South Africa
Presented by:
In association with the Gordon Institute of Business Science
Contents
The Entrepreneurial Dialogues
The Entrepreneurial Dialogues
State of Entrepreneurship
in South Africa
Contents
Forewords
• Entrepreneurship is at the Heart of Our Business Too: Iris Dempsey
• Approach and Methodology: Adrian Gore & Malik Fal Pg 02
The State of Entrepreneurship in South Africa
Pg 04
Developing a Culture of Entrepreneurship in South Africa
Pg 10
Access to Capital
Pg 14
Enterprise Development & Black Economic Empowerment
Pg 18
Incubators and Small & Medium Enterprise (SME) Support
Access to Skills
Pg 22
Acknowledgements Pg 30
Pg 03
Pg 26
1
Forewords
The Entrepreneurial Dialogues
Entrepreneurship is at the heart
of our business too
E
ntrepreneurship is vitally important
to the economic and social development of South Africa. Through innovation, entrepreneurs create new,
competitive markets and businesses which
lead to job creation and have a multiplying
effect on the economy. Entrepreneurship
empowers citizens and is required for any
emerging market to move forward and successfully integrate into the global economy.
FNB Commercial
is a proud
partner of Global
Entrepreneurship
Week, a worldwide initiative
hosted by
Endeavor
South Africa,
a non-profit
organisation
that supports
high impact
entrepreneurs
in 11 emerging
markets,
including
South Africa.
2
The South African government has recognised this contribution and therefore has
the goal of establishing South Africa as an
entrepreneurial nation that rewards and
recognises entrepreneurship. FNB Commercial Banking supports this through our
contribution and participation in enabling,
growing and accelerating entrepreneurship
in South Africa.
FNB Commercial is a proud partner of Global Entrepreneurship Week, a world-wide initiative hosted by Endeavor South Africa, a
non-profit organisation that supports high
impact entrepreneurs in 11 emerging markets, including South Africa. Together, we
hope that ongoing activities around this
week will raise awareness about the potential of entrepreneurship, and initiate further
interventions and debate on issues pertaining to new venture creation.
In that vein, we take great pleasure in presenting the first in a series of Entrepreneurial
Dialogues focusing on the State of Entrepreneurship in South Africa. This pioneering
report is unique in the fact that it represents
the combined view of government, private
sector and academia – extracted from a series of meaningful exchanges and debate.
We aim to begin a new era of innovative
collaboration that will result in accelerated
growth and enablement of entrepreneurs,
delivering sustainable enterprises that
have a positive impact on our lives and
communities.
As a company with entrepreneurial spirit at
its heart, FNB Commercial is committed to
empowering and educating South African
entrepreneurs to take advantage of the business opportunities present in our country.
Iris Dempsey
CEO, FNB Commercial Banking
APPROACH AND METHODOLOGY
T
his paper was a collective effort. It
was written to reflect what was said
in actual debates of the first “State
of Entrepreneurship on South Africa” conference on 19 November 2009; it
is not a mouthpiece to broadcast the views
of Endeavor or FNB. In addition to the main
“State of Entrepreneurship” panel that initiated the conference, five breakout sessions
were held on the following topics:
•
•
•
•
•
he Culture of Entrepreneurship
T
Access to Capital
Access to Skills
Incubators and Support Organisations
Enterprise Development and BEE
Each session was recorded in audio and
video, and Gordon Institute of Business
Science (GIBS) students were assigned to
all breakout rooms with a mandate to take
notes and assist the facilitators in making
sure that each of the five discussions covered both “key issues” and “proposed solutions” for the theme.
Because this exercise was intended to be
collective, the Endeavor team sent a first
draft of the paper to key panelists and
experts for comment; the intention was to
give these experts an opportunity to review
the draft.
It is our hope that the first edition of this
paper will achieve its objective of creating
a useful collaborative platform for South
Africans who are interested in enhancing
the level of entrepreneurial activity in the
country. We apologise in advance for any
shortcomings and hope to improve on this
effort next year.
Adrian Gore
Chairman,
Endeavor SA
Malik Fal
MD,
Endeavor SA
It is our hope
that the first
edition of this
paper will
achieve its
objective of
creating a useful
collaborative
platform
for South
Africans who
are interested
in enhancing
the level of
entrepreneurial
activity in the
country.
In late January 2010, copies of the audio
recordings and of the GIBS students’ notes
were forwarded to Endeavor South Africa
where staff members created the first draft of
this paper. The Endeavor team read through
the GIBS students’ notes and listened to the
audio recordings of each session. Drawing
from these materials, session by session,
they organised the content into “key points
of discussion” and “recommendations and
insights” sections for the paper.
3
The State of Entrepreneurship in SA
The Entrepreneurial Dialogues
THE STATE OF
ENTREPRENEURSHIP
IN SOUTH AFRICA
OVERVIEW
The first annual conference on the “State of
Entrepreneurship in South Africa” was held on
19 November 2009, at the FNB Conference Centre
in Sandton. This conference was part of a series
of activities within Global Entrepreneurship
Week (GEW), a Kauffman Foundation global
initiative that strives to foster national debates
on entrepreneurship around the world. In 2009, it
is estimated that three million people worldwide,
from 8 800 organisations, participated in 25 000
activities across 87 countries.
The headline panel of the FNB-Endeavor
conference on 19 November was a mixture of
policy makers, entrepreneurs, academics, and
funding providers. Their mandate was to drive a
general discussion on entrepreneurship in South
Africa with the underlying goal to set the tone for
the five subsequent breakout panels that were to
follow later in the day.
4
5
The State of Entrepreneurship in SA
The Entrepreneurial Dialogues
KEY POINTS OF DISCUSSION
• South Africa’s entrepreneurial
activity is improving but still lags
behind
The most widely used measure of entrepreneurship is the TEA (Total Entrepreneurial
Activity) or ‘early stage entrepreneurial activity’ Index. It measures entrepreneurial activity by looking at the percentage of the active
population, people between 25 and 64, who
are entrepreneurs in any given country.
The most
competitive
nations are
those that
have the
highest level of
entrepreneurial
activity. Small
and medium
size businesses
tend to be
the greatest
creators of jobs
and collectively,
the greatest
creators of
wealth in
emerging
economies.
6
South Africa’s TEA in 2008 stood at 7,8%,
which is greater than it was in 2006 (5%)
but still lower than India-Brazil (11,5% –
12%), Colombia (24,5%), Mexico (13,1%)
and even the United States1 (10,8%). However in 2009, following the economic crisis,
the level of early-stage entrepreneurial activity in South Africa dropped again to just
over 5%. Within South Africa, sharp differences remain within demographic groups
with Indians and Whites having the most
entrepreneurs (1,6:1 and 1,7:1 respectively
compared to the general population), while
Blacks and Coloureds have fewer entrepreneurs (0,9:1 and 1,2:1 respectively compared to the general population).
This situation is considered to be particularly alarming in a context where South Africa’s Gini coefficient, its national gap between rich and poor, has actually become
one of the highest in the world (South Africa
is at a Gini index of 57,8 compared to Brazil’s 57). Finding ways to stimulate entrepreneurship in South Africa has become one of
the country’s Gordian knots2, and a critical
goal in order to consolidate the democratic
gains achieved since 1994.
•R
espect and recognition for the
contribution of entrepreneurs is
not sufficient in South Africa
Entrepreneurship is not yet recognised for
the impact, growth, and possibilities it can
offer the South African economy, or for the
impact it can have on unemployment and
other social tensions in the country. There
has been an influx of people from other African countries into South Africa, many of
whom have become vibrant entrepreneurs;
will this phenomenon create role models
that will inspire the majority of South Africans to appreciate the role entrepreneurship can have in their own lives and in the
communities they live in?
Many stakeholders from different elements
of society are attempting to foster greater
entrepreneurship in South Africa. Partnerships like the FNB-Endeavor partnership
offer support, government bodies like the
Department of Trade & Industry and the
Small Enterprise Development Agency
(SEDA) as well as private participants like
the Rupert family and others offer funding, academic institutions like University
of Cape Town, Gordon Institute of Business Science and the University of Witwatersrand offer skills. They all contribute
towards this critical cause. However, these
fragmented approaches do not appear
to be producing acceptable results and
greater effort should be put into trying to
combine the various support structures.
Emphasis needs to be placed on highimpact, high-growth entrepreneurs who
can use these resources effectively and
become role models.
• Entrepreneurial activity drives
economic growth and job creation
The most competitive nations are those
that have the highest level of entrepreneurial activity. Small and medium size businesses tend to be the greatest creators of
jobs and collectively, the greatest creators
of wealth in emerging economies. In 1790,
90% of the United States population was
self-employed, a fact that is commonly
• Aspirant and existing
entrepreneurs face huge challenges
and frustrations in South Africa
The country’s financial and operating environment is not supportive of entrepreneurs, particularly in terms of regulations,
policies and access to capital. The banking
system remains the main source of capital
to start and grow businesses, whereas in
other emerging countries, different financial
structures play this support role. Financial
services groups like First Rand that have an
entrepreneurial tradition and have spurred
successful entrepreneurial ventures like
Discovery and Outsurance, are trying to
make a difference in this regard, but these
efforts in isolation might not be sufficient to
make a meaningful difference.
• Successful entrepreneurs
are “disrupters” who like to do
things differently
Entrepreneurship is a challenging life
choice; in the words of Discovery’s Adrian
Gore, “Becoming an entrepreneur is like
jumping out of an airplane with silk worms
instead of a parachute and hoping that they
are over-achievers!” In order to cope with
the trials and tribulations that pave the entrepreneurial journey, entrepreneurs must
have an innate frustration at normality and
a strong belief that they can offer beneficial
products and services to their fellow men.
This is not for everyone and in order to succeed, entrepreneurs must understand and
leverage whatever special form of capital
they can bring to the table; be it a special
relationship with a person, access to a critical piece of information, or a unique knowledge and experience that gives them a leg
up in the pursuit of a specific opportunity.
What matters in the long run is what they
do with that capital and how they transform
it into a vibrant business. South African entrepreneurs, unfortunately, tend to suffer
from the “me too” mentality and a propensity to imitate rather than innovate.
• Entrepreneurial skills are
severely lacking
Both formal (primary to tertiary education)
and informal (home and social networks)
educational structures do not impart entrepreneurial skills in South Africa. If Malcolm
Gladwell’s premise that it takes 10 000
hours (five to six years) of practice to master anything holds true, then much more
needs to be done to nurture entrepreneurial skills in young people. This is why FNB
Commercial is already involved in a series
of pilot entrepreneurial programmes within
the school and university environments.
Other stakeholders must also get involved
and find innovative and effective ways to
address this challenge.
• Entrepreneurs who focus solely
on making money do not end up
building GREAT businesses
People start businesses for different reasons; some to make money, others because they feel that they have something
different to offer, many because they do not
like the controls in corporate environments.
Whatever their reasons, South African entrepreneurship icon Raymond Ackerman,
paraphrased by facilitator Alec Hogg, argues: “Money should not be the main motivating factor in starting a business. People
should go into business to work on something they enjoy and the money will follow.”
On the other hand, there is a notion that
people who have been extremely success-
thought to have been a major factor in the
building of the world’s largest economy.
Many of today’s most impactful global
corporates began as small entrepreneurial
ventures in America at about that time. In
South Africa, as in other emerging economies, these potentially transformative entrepreneurial entities must be identified
and nurtured now.
In order to
cope with
the trials and
tribulations
that pave the
entrepreneurial
journey,
entrepreneurs
must have
an innate
frustration at
normality and
a strong belief
that they can
offer beneficial
products and
services to their
fellow men.
7
The State of Entrepreneurship in SA
The Entrepreneurial Dialogues
points out that a large portion of the Ernst
& Young annual entrepreneurship competition finalists started with less than a
R1 000 investment.
It is important
to note that
the rewards
of business
success should
be shared
among the
founding staff
who took part
in the risk
associated with
a new venture; a
culture of
co-ownership
in the early
stages is a
critical success
factor that is not
always practised
by South African
entrepreneurs.
8
One key aspect to consider, based on the
experience of institutions like SEDA, is
whether the individuals who need funding
have identified and are pursuing a genuine
need, or are merely trying to imitate an already saturated business idea. In the words
of Charles Wyeth from SEDA, “Our Tshwane
branch happens to be just across the road
from a CIPRO branch. At that branch, out
of the 50 people we see every day, 40 are
people who have just come out of CIPRO to
register a business and immediately come
to us asking for money and asking us what
business sector they should get into! To us,
these people are not entrepreneurs.”
ful in business were never solely motivated
by money but by passion. Warren Buffett
who is the second richest man in the world
and founder of the tenth largest company
on the NYSE, still lives in the same house
and drives the same car he had 45 years
ago. So his original plan was clearly not
about money although he ended up making
lots of it. Finally, it is important to note that
the rewards of business success should
be shared among the founding staff who
took part in the risk associated with a new
venture; a culture of co-ownership in the
early stages is a critical success factor that
is not always practised by South African
entrepreneurs.
• Aspirant entrepreneurs in the
townships battle to get started
SABEF 3’s 30 000 members are a truly representative sample of this tension. In the
words of Lebo Gunguluza, “Our members
are broke! We see many of them everyday
who come to us frustrated at not even getting an opportunity to invest in a R2 000
video camera so that they can start a wedding video-filming business.” Sometimes
people just need a modest amount of support to get started and there is urgency
in addressing such needs. At the same
time, many successful businesses were
started on the premise of a very good idea
and very little money. Dr Mike Herrington
• Most female entrepreneurs in
South Africa seem to be lifestyle and
not high-impact entrepreneurs
The assumption is that men entrepreneurs
can focus on their businesses more than
women entrepreneurs who tend to have
multiple commitments to balance in their
lives. In addition, Dr Mike Herrington refers
to a study that shows that South Africa’s
men:women ratio of entrepreneurs is 1,6:1
as opposed to 1:1 for countries like Peru
and Chile.
Some of the reasons mentioned in the
study for the gap between men and women in entrepreneurship are women’s propensities to: want to spend more time with
their families, want to avoid the stress of
employing too many people, have less
education, and experience more difficulty
accessing capital due to marriage contract
formulations. It was noted that if South
Africa could bring its women:men entrepreneurship ratio to 1:1, the national TEA
would significantly improve.
RECOMMENDATIONS
& INSIGHTS
•W
idespread “consumer” mentality, especially in the black community needs to give
way to “productive” mentality.
•M
ain success factor in entrepreneurship
is the ‘psyche’, meaning the passion and
drive, of the entrepreneur.
• Entrepreneurship is critical for South
Africa’s future. In the short-term, the regulation and bureaucracy attached to starting
businesses must be reduced. In the longterm, only broad educational reforms, at
all levels, will change South Africa’s entrepreneurial activity.
• Government is getting even more involved in entrepreneurship development
(e.g. Khula direct initiative). It must do it
in ‘smart’ ways while confronting some
of the dysfunctional practices that are
‘clouting’ entrepreneurship in South
Africa; tender-preneurship, entitle-neurship, funding without effective ongoing
skills support strategies.
OTHER ASPECTS
TO CONSIDER
• Entrepreneurial activity drives
economic growth and job creation
Small business growth has been linked to
economic growth, the creation of employment, and the alleviation of poverty. Furthermore, the Global Entrepreneurship Monitor
report has conclusively shown that the level
of early-stage entrepreneurial activity is
directly related to per capita income.
Some of
the reasons
mentioned in the
study for the gap
between men
and women in
entrepreneurship
are women’s
propensities to:
want to spend
more time with
their families,
want to avoid
the stress of
employing too
many people,
have less
education, and
experience
more difficulty
accessing
capital due to
marriage contract
formulations.
NOTES
1. Data from UCT’s GEM reports; The general assumption is that
developed markets are supposed to have lower TEA’s than emerging
markets as a result of having a larger number of established
companies.
2. A Gordian knot is derived from ancient Greek history in reference to
very complex problems and situations.
3. South African Black Entrepreneurs Forum.
9
Developing a Culture of Entrepreneurship in SA
The Entrepreneurial Dialogues
KEY POINTS OF DISCUSSION
DEVELOPING
A CULTURE OF
ENTREPRENEURSHIP
IN SOUTH AFRICA
OVERVIEW
Culture matters when it comes to entrepreneurship.
This panel explores the cultural status in South
African entrepreneurship. It further explores
objectives and aspirations to potentially change
the current culture of entrepreneurship in South
Africa. It proposes tangible solutions to the cultural
challenges South Africa faces with regard to its
level of entrepreneurial activity.
10
• Low tolerance for entrepreneurial
failure
South African society does not appear to
support entrepreneurs who have failed.
People disassociate themselves from
them, banks shut them down and the
press demonises them. This culture, as
can be expected, is not conducive to fostering greater entrepreneurial activity and
should thus be confronted. In other parts
of the world, like Silicon Valley for example, entrepreneurial failure is a badge of
honour that is actually sought after by the
financing community. Silicon Valley venture
capitalists take pride in supporting people
who have learnt from their mistakes. In
the words of typical Silicon Valley Venture
Capitalists, “When we look at a funding
application, a very important factor for
us is whether the entrepreneur has failed
before because the greatest learnings on
how to run a business come from having
failed before!”
• South Africa has an
entrepreneurial ‘base’ of highimpact entrepreneurs
Every country, including South Africa, has
a core group, or base, of high-impact entrepreneurs. How a country supports, celebrates, and develops that ‘base’ determines its culture of entrepreneurship and
ultimately, the future of its economy. In
South Africa there is a country-wide intention and effort to support entrepreneurship,
which is apparent, among other things,
through the Black Economic Empowerment (BEE) policies and other similar types
of initiatives. However, despite such efforts
entrepreneurship is not as “activated” as
it should be and bringing attention to the
country’s ‘base’ of high-impact entrepreneurs is a great starting point to address
this problem.
• The Infinity of wealth
An important component of peoples’ desire
for free enterprise is determined by whether
they view, consciously or unconsciously,
wealth as being finite or infinite. People who
view wealth as finite, as a zero sum game,
tend to focus more on transactional, clientele-based career choices. For them the path
to wealth is about connecting with the right
crowd, gaining access to a share of a fixed
pie, seeing the world as a static dichotomy
of ‘haves’ and ‘have nots’ and ensuring that
they are among those who have. When people view wealth as infinite, they search for
opportunities and ways to make a difference
for themselves and for the world. Their desire to innovate and create wealth from new
ideas becomes stronger and they no longer
spend their energy on trying to gain access
to finite riches; a diamond mining concession, a BEE deal, or a marriage into one of
their town’s wealthy families. Both types of
mental models (on whether wealth is finite
or infinite) exist in South Africa, but the one
based on the infinity of wealth needs to be
proactively fostered.
Every country,
including South
Africa, has a
core group,
or base, of
high-impact
entrepreneurs.
How a country
supports,
celebrates,
and develops
that ‘base’
determines
its culture of
entrepreneurship
and ultimately,
the future of its
economy.
• Pre-existing values, foreign
experiences and a home grown
culture of entrepreneurship
Culture is a very difficult thing to change; it
is something that is embedded in peoples’
psyches and behaviours. As South Africans
seek to develop a culture of entrepreneurship, they need to build on pre-existing values and behaviours rather than try to emulate foreign habits and beliefs regardless
of what the local norms are. For example
the western culture of entrepreneurship
based on the “rock star” worship of entrepreneurs may not be well-suited for South
Africa where communal values are more the
norm. Having entrepreneurial role models is
important, but instead of looking at individual role models, South Africans should
realise that great companies are the making
11
Developing a Culture of Entrepreneurship in SA
The Entrepreneurial Dialogues
of a collective, and not of an individual role
model. Through that, young South Africans
will hopefully learn to work with others in
creating entrepreneurial ventures.
Social science
academics and
entrepreneurial
careers are
not considered
to be the
“golden path”
and as such
do not always
attract the
best and the
brightest.
Such values
and behaviours
need to be
confronted
and changed
at homes, in
schools, and at
universities.
12
• Corporate careers are still more
desirable in South African Society
South African society still, by and large,
honours maths and science academic
achievement and corporate careers. Social science academics and entrepreneurial careers are not considered to be the
“golden path” and as such do not always
attract the best and the brightest. Such values and behaviours need to be confronted
and changed at homes, in schools, and at
universities. They restrain entrepreneurial
activity and entrench stereotypes about the
kinds of backgrounds entrepreneurs should
or should not have. The reality, of course, is
very different from the perception.
• Attitudes and language towards
wealth and towards the wealthy
Common South African manners of speech
such as ‘filthy rich’ or ‘stinking rich’ denote
a sense of resentment towards the rich.
They somehow attach a negative energy to
the pursuit of wealth, and to those whose
self-declared purpose in life may appear to
be the pursuit of wealth. Some have argued that South Africans have been deeply
affected by years of conservative Christian
values that exalt austerity, self-sacrifice,
and even poverty as important factors of
salvation. Others say that what has been
done can be undone through leadership
and national debates about how South Africans should define success. Whichever
way these discussions go, entrepreneurship and the journey towards greater entrepreneurial activity should be separated
from such existential issues. Entrepreneurship is the answer to many social ills South
Africa faces right now, and the longer it
takes to imbed a wider and deeper culture
of entrepreneurship the greater the danger
will be that the painfully-gained South African democracy will fail.
• South Africa’s sub-optimal
transport infrastructure impairs the
culture of entrepreneurship
Part of the historical legacy of this country
is that to this day, an estimated 10 million
South Africans still do not have access to
transportation and are thus confined in their
physical movements. This reality is a major
impediment to entrepreneurship. Mobility
increases peoples’ exposure to new concepts and ideas; in turn, exposure to new
concepts and ideas drives one’s sense of
experimentation and innovation. As more
and more South Africans travel within and
outside South Africa and get exposed to
new concepts and ideas, entrepreneurial
activity should increase. In fact, between
2006 and 2008, the growth in South Africa’s TEA index from 5% to 7,8% suggests
that entrepreneurial activity has increased,
but many other factors have also contributed to that increase.
OTHER ASPECTS
TO CONSIDER
RECOMMENDATIONS
& INSIGHTS
• South Africa’s entrepreneurial
‘base’ of high-impact entrepreneurs
It is questionable whether the South African government’s efforts to support
entrepreneurship have worked. These
government policies might have merely
transferred wealth from one minority group
to another.
•T
he entrepreneurship-limited values that
currently prevail in South Africa can and
must be ‘unlearned.’
• South Africa can learn from the experience
of other countries to foster its own culture
of entrepreneurship: celebrating role models, promoting an effective venture capital
and private equity community, providing
structures for entrepreneurial education
and skills-support. However, local norms
must also be taken into account.
• Foster a culture of entrepreneurship in
homes, schools and universities.
• Include entrepreneurship in science-related fields of study.
• Recessions provide business opportunities;
policies must be formulated to encourage
and support would-be entrepreneurs.
• Attitudes and language towards
wealth and towards the wealthy
Some of the derogatory terms towards the
wealthy such as ‘filthy rich’ are not specifically South African; they are used elsewhere in English-speaking countries.
Therefore the assumption that South Africans have a more, or less, positive attitude
towards wealth and towards the wealthy is
not correct if based on this particular cultural trait.
Part of the
historical legacy
of this country
is that to this day,
an estimated
10 million
South Africans
still do not
have access
to transportation
and are thus
confined in
their physical
movements.
This reality
is a major
impediment to
entrepreneurship.
13
Access to Capital
The Entrepreneurial Dialogues
KEY POINTS OF DISCUSSION
The key points of discussion detail the various problems and obstacles that are associated with access to capital in South
Africa. There is an underlying theme of an
existing ‘perception gap’ in these findings.
• Discrepancies in matching
between funding mandates and
entrepreneurs’ eligibility
The fit between the capital providers’ criteria and the businesses that are seeking
capital is often problematic. In many cases,
large disparities exist between the economic and financial status of the business
seeking capital and the requirements of the
various financing options that are made
available by different funding groups.
ACCESS TO CAPITAL
OVERVIEW
There is a general perception amongst
entrepreneurs that access to capital is a major
inhibitor to entrepreneurial growth and activity.
The general misconception is that this is a
result of scarcity of funds available to funding
institutions. A recent Global Entrepreneurship
Monitor study revealed that South Africa is no
worse or better off than any other country in
terms of the availability of capital. This section
aims to identify and catalogue many of the
factors that may determine the availability of
capital to entrepreneurs. Although one may
still be in doubt as to where the drawback lies,
funding is available in abundance in South
Africa and the issue of scarcity is more a myth
than a reality.
14
Entrepreneurs tend to submit applications
that are inconsistent with the funder’s mandate. Venture capital funding is expensive;
as a result, venture capitalists are generally not willing to assume too much risk.
In South Africa entrepreneurs tend to seek
sums of funding without the required business size and sophistication as collateral
to back up their applications. Applications
of this nature often do not comply with the
funder’s mandate. Furthermore, entrepreneurs often fail to source funding from alternative sources such as smaller scale equity investors who will not take as high an
equity stake as a larger venture capitalist.
A case study given is the Venture Capital
arm of the Industrial Development Corporation (IDC), where many businesses seeking
funding tend to apply for under R1 million
which is below the IDC’s mandate of equity
funding range of R1 million to R15 million.
Note that the reluctance of venture capitalists like the IDC to fund under R1 million
is due to a lack of security and collateral
and the sheer volume of applications that
fall under their mandate range.
• Oversupply of entrepreneurs
in highly saturated markets and
industries
Funding agencies are often approached by
entrepreneurs operating in highly saturated
markets that are not easy to differentiate;
these types of businesses are less attractive. The issue is not that the entrepreneur
or his business is not viable enough, but
rather that under such market circumstances it is more difficult for entrepreneurs to
present unique business models and opportunities. This problem is mainly attributable to a lack of confidence in returns from
such markets due to their saturation levels.
• Lack of awareness and
preparedness amongst
entrepreneurs
The issue is not so much a lack of access
to capital but the stringent and lengthy
process required to access funding. This
is exacerbated by the general lack of
awareness about the procedures and the
courses of action involved in gaining equity funding, which leaves entrepreneurs
under-prepared and under-researched.
The application process tends to be bureaucratic and heavily laden with protocol
and red tape as funders endeavour to gain
confidence and assurance when granting
funding to entrepreneurs.
The issue is
not so much a
lack of access
to capital but
the stringent
and lengthy
process required
to access
funding. This is
exacerbated by
the general lack
of awareness
about the
procedures and
the courses of
action involved
in gaining
equity funding,
which leaves
entrepreneurs
under-prepared
and underresearched.
• Expectation management amongst
entrepreneurs
Expectation management presents a challenge to the funding process because many
entrepreneurs expect the process of getting funding to be quick and easy. Such
expectations are unrealistic. Unprepared
applicants often end up frustrated and disappointed with the process. This is not to
promote pessimism about the process but
to encourage preparedness, pragmatism
and practicality when considering funding
instruments.
15
Access to Capital
The Entrepreneurial Dialogues
Different funding
agencies need
to understand
what drives
the industries
they invest in.
Based on that
knowledge,
funding
providers should
offer instruments
that are tailored
to specific
industries. These
instruments
should also
extend support
services to
entrepreneurs at
different levels
and skill sets.
16
• Over-emphasis on capital as the
key enabler to entrepreneurial
success
There is a general lack of understanding of
the entrepreneurial process. Many entrepreneurs are under the illusion that capital
is the most critical catalyst for business
success. Between 2008 and 2009, there
has been a 40% decrease in the amount
of entrepreneurial activity in South Africa.
This is partly attributable to the effects of
the global economic downturn and the fact
that there was less investment capital available. However, the lower level of entrepreneurial activity could have been attributable
to other factors. It is true that capital is essential and plays a key role in the ability of
a business to progress; however, capital is
not the only catalyst for success. The entrepreneur plays the most important role.
In theory, there is an array of factors that
dictate the conditions and circumstances
under which a business should thrive. But,
in reality, it is the ability of the entrepreneur
to identify these factors and take appropriate courses of action that ultimately leads
to the success of the business. In short, it
is a matter of skill and aptitude.
RECOMMENDATIONS
& INSIGHTS
• Proactivity amongst entrepreneurs
First and foremost, an entrepreneur needs
to be meticulous and proactive. Venture
capital firms encourage entrepreneurs to
formalise market strategies and business
plans and to conduct comprehensive research when formalising these plans. There
is a wealth of information at the fingertips of
all entrepreneurs. They should use the internet and mass media to gain a complete
understanding of the dynamics of the market within which their business operates.
It is also important to investigate alternative
forms of funding that may be available, and
use the information gathered effectively.
They should take time and implement necessary changes to the operations of their
business to ensure that they are ready and
eligible to meet the mandate of a prospective funder. Information is essential in making the right critical decisions.
• Greater understanding by funders
and involvement in target industries
Different funding agencies need to understand what drives the industries they invest in. Based on that knowledge, funding providers should offer instruments that
are tailored to specific industries. These
instruments should also extend support
services to entrepreneurs at different levels and skill sets. For instance, the nature
of funding requirements in the construction industry will be very different from
those in the retail industry. There is a need
to take a more direct approach to address
the perception gaps between funders and
the entrepreneurial community. This could
be achieved by engaging with selected
groups of entrepreneurs who can provide
feedback on their experiences in trying to
access capital.
good projects. To address one of the bigger
problems faced in the issue of access to
capital (which is the general lack of information available to entrepreneurs), there is
a pressing need for an increase in communication between the different funding vehicles and their prospective clients. This will
require effort from both parties.
• Improved communication
between funding institutions and
entrepreneurs
Capital is available in South Africa and entrepreneurs need to discard the rather misguided belief that there is no money to fund
• Greater financial education at
grassroots level
In the long-run, part of the responsibility for
providing financial education at grass roots
levels and reducing financial illiteracy in
South Africa lies with the government and
other relevant parties. This will boost the
sophistication and capacity of prospective
entrepreneurs in the future.
Funders need to communicate, in simpler
terms, what their funding requirements are.
Entrepreneurs need to understand these requirements more clearly in order to prepare
themselves and produce business plans
that address the needs of funding providers. This will help to close the prevailing
perception gap within the entrepreneurial
community about availability of capital and
access to funding. The onus falls on both
parties to make these efforts.
Funders need to
communicate, in
simpler terms,
what their funding
requirements are.
Entrepreneurs
need to
understand these
requirements
more clearly in
order to prepare
themselves
and produce
business plans
that address the
needs of funding
providers.
OTHER ASPECTS
TO CONSIDER
• Expectation management amongst
entrepreneurs
Too often business plans are completed by
service providers who have no knowledge
of the business involved. The problem facing financiers is that the entrepreneurs
themselves do not always understand their
own projects nor do they understand the
business plans completed by third parties.
This is one of the main reasons why potential funders are unwilling to fund such
applicants.
17
Enterprise Development & BEE
The Entrepreneurial Dialogues
E
nterprise development (ED) requires
South African corporates to spend
3% of their annual profits on support
for black owned enterprises. This
can be done either directly or by pledging funds to ED agencies that work with
eligible companies. There is an estimated
R12 billion in potential funding available for
black businesses. Enterprise development
has great potential to increase job creation
and bring more black entrepreneurs and
businesses into the mainstream economy.
The reality is that it is a long way from
achieving its intended aims for reasons
that will be covered in this section. This
section assesses the challenges of ED as
an instrument for fostering black economic
empowerment. It highlights the challenges
different stakeholders face with ED. It also
suggests possible solutions that will improve ED and ultimately increase job creation in South Africa.
ENTERPRISE
DEVELOPMENT &
BLACK ECONOMIC
EMPOWERMENT
OVERVIEW
The Broad Based Black Economic Empowerment
Act (B-BBEE) was passed into law in 2007, as an
amendment to the Black Economic Empowerment
Act of 2003. This resulted in additional codes,
such as Enterprise Development (Code 600), being
included in the scorecard. The main objective of
this code is to support and grow emerging black
owned business. Enterprise Development currently
makes up 15% of the overall B-BBEE scorecard.
KEY POINTS OF DISCUSSION
• Confusion about the purpose of
ED within the B-BBEE regulation
context
Enterprise development is generally misunderstood because it is a relatively new
legislation. In addition, the general lack of
understanding and uptake is partly attributed to negative perceptions of BEE. The
positive aspects of the BEE codes are often clouded by perceptions of corruption,
misappropriation of tenders, and nepotism.
Previously, awarding of tenders was based
on company ownership and procurement,
which opened up avenues for ‘showboating’ and other corrupt practices. These
malpractices have lead to pessimism and
confusion about BEE and B-BBEE.
On the other hand, there has been insufficient communication about ED for entrepreneurs. Many are unaware that it is a
18
possible avenue for funding and even less
aware of the procedures and requirements
involved in securing ED funding.
• Ineffective incentives for
corporates to embrace ED
There is a perceived lack of interest in ED
in the corporate sector for a number of reasons. Firstly, ED is positioned as a social
objective rather than a commercial exercise
that could be rewarding for both entrepreneurs and the corporates who provide
funding. The social positioning currently
presented to corporates does not seem
to resonate well. As a social objective, ED
goes against the principle of maximising
profits and there is no buy-in from top management as ED tends to be viewed as a
burden.
The task of managing ED is often assigned
to the Human Resource or Finance departments, which do not always have the technical knowledge required to administer ED
funds appropriately.
There is an
under-supply of
suitably qualified
and skilled black
entrepreneurs.
These potentially
more attractive
entrepreneurs
are often in
corporate
jobs, with
attractive salary
packages, lured
by corporates
who have to
satisfy the ‘skills’
section of the
BEE Codes.
The current mindset of management is to
get as many points as possible, with minimum effort, time, and resources put into
ensuring that ED funds are appropriately
disbursed.
• Majority of applicants lack the
skills to realise the promise of ED
One view states that there is a mismatch between the types of entrepreneurs who meet
the requirements for ED and those who are
applying for ED funding. ED funders are
approached by entrepreneurs who often
lack the skills and experience to best use
the resources. There is an under-supply of
suitably qualified and skilled black entrepreneurs. These potentially more attractive
entrepreneurs are often in corporate jobs,
with attractive salary packages, lured by
corporates who have to satisfy the ‘skills’
19
Enterprise Development & BEE
The Entrepreneurial Dialogues
section of the BEE Codes. By and large,
the availability of funding is not the primary
constraint; the difficulty is finding competent entrepreneurs and good enterprises.
When ED is
positioned to
resolve a social
problem, it is
inefficient and
unsuccessful; a
grave unintended
consequence
is that it makes
entrepreneurs
over-dependent
on corporate
‘handouts’. When
South African
corporates see
the commercial
rewards of a
successful ED
programme, top
management will
be more willing
to include it in
their business
planning,
budgeting and
other business
processes.
20
• Enterprise development’s sole
focus on funding is insufficient
On the other hand, there is a fundamental
view that ED does not cater for the majority of existing black entrepreneurs who lack
business skills. Over and above funding,
these entrepreneurs need support and
business training. Without skills development, the likelihood of these entrepreneurs
creating competitive and sustainable businesses is slim.
studies conducted in the US and the EU
have shown that ED can be successful.
For example, Investments in a company’s
value chain improve competitiveness, cost
efficiency and quality – which all ultimately
improve profitability. Corporates could have
a lot to gain by applying this approach to
their ED funding.
RECOMMENDATIONS
& INSIGHTS
When ED is positioned to resolve a social
problem, it is inefficient and unsuccessful;
a grave unintended consequence is that it
makes entrepreneurs over-dependent on
corporate ‘handouts’. When South African
corporates see the commercial rewards of
a successful ED programme, top management will be more willing to include it in their
business planning, budgeting and other
business processes.
• Enterprise development incentives
for corporates
It is imperative for corporates to understand that ED can be much more than just
a social investment. It can be a profitable
exercise that can add significant value to
the business. Interesting business case
• Outsourcing as an option for ED
function
Enterprise development is a technical process that requires specialised skills. Corporates do not always have these technical
skills in-house. A short-term solution would
be for corporates to outsource the ED func-
tion to agencies that understand the legislation and can invest in the right enterprises.
There is however, a risk that in the longrun, outsourcing this function will mean that
ED will become increasingly separate from
core business operations. But, in the shortterm, outsourcing provides a good option
for many corporates which don’t yet fully
understand ED.
• Reform the B-BBEE Codes
Although Enterprise Development and Preferred Procurement constitute 35% of the
BEE scorecard, many corporates and government tender processes still mostly focus
on ‘company ownership’. So far, to a large
extent, most corporates are compliant with
the ‘ownership’ requirements of the scorecard. The B-BBEE codes therefore need
to evolve towards putting more emphasis
on ED. One suggestion is that government
should put less emphasis on the ‘ownership’
and ‘employment’ sections of B-BBEE and
place higher allocations of points to ED. This
will make the desire to invest in ED more financially attractive to corporates. They could
be eligible to bid for tenders based on their
level of ED compliance rather than their level
of ownership. Incentives of this nature would
make more ‘business sense’ to companies,
as well as reduce corruption in the tendering process. Above all, rejigging the codes
could provide the commercial case that is
needed for companies to be more actively
supportive of ED.
Furthermore, ED has the potential to give a
much-needed boost to job creation. Currently, it is not being used to its full potential due to a lack of communication, a lack
of skilled entrepreneurs, and a lack of incentives for corporate South Africa to truly
adopt the concept. With suitable interventions such as improving communication and
education on ED, creating the right support
for black entrepreneurs and providing the
right incentives for corporates, ED could be
an important tool to fast-track economic
development in South Africa.
OTHER ASPECTS
TO CONSIDER
• Imperfections notwithstanding;
BEE Codes should be revised
infrequently and with great caution
While our current regulatory framework may
not be ideal, regulatory stability creates the
context within which innovation and progress can take place. Frequently, changes in
regulations prevent successful models from
reaching maturity, demonstrating effectiveness, and being replicated. It is therefore
destructive for BEE and socio-economic
development to revise the codes more frequently than every five to ten years, particularly in areas such as ED, which are longterm. Codes should be revised infrequently,
and with great caution.
• Implementation of ED must not be
treated lightly, or it will simply fail
Enterprise development has been embodied in various business models around the
world, including micro-finance, venture
capital, private equity, and commercial
lending (each having models that include
strong technical assistance). These models are effective when driven by real businesses with appropriate skills, experience
and dedicated capacity. For example,
SASOL will need to spend >R1 billion on
ED by 2015. A R1 billion fund would take
10 years to invest if staffed by at least 20 investment professionals, earning on average
between R800 000 and R1 million each. ED
programmes which do not gear up to select
the right enterprises to support and structure the relationship for success, and support the enterprises over time, will simply
squander valuable resources.
Enterprise
development has
been embodied
in various
business models
around the
world, including
micro-finance,
venture capital,
private equity,
and commercial
lending (each
having models
that include
strong technical
assistance).
These models
are effective
when driven by
real businesses
with appropriate
skills, experience
and dedicated
capacity.
21
Incubators & Sme Support
The Entrepreneurial Dialogues
I
ncubators have been in existence since
the 1950s, but it is only in the 2000s that
for-profit incubators started to emerge.
Within the for-profit incubator environment, even specialised incubators known
as “accelerators” have emerged, focusing
primarily on the IT industry. There are 7 000
incubators around the globe. Classically, in
a tough economy, when the unemployment
rate rises, more people turn to necessitydriven entrepreneurship and incubators are
well positioned to assist them.
KEY POINTS OF DISCUSSION
The important aspects of incubation are innovation and knowledge, particularly in today’s
knowledge-based economy. In this context,
knowledge refers to the experience, data,
technology, networks, and transfer of accumulated information that flows to the entrepreneur. Innovation is about new ways of
increasing resource yields and efficiencies.
INCUBATORS AND
SMALL & MEDIUM
ENTERPRISE (SME)
SUPPORT
OVERVIEW
Business incubators assist emerging companies
survive and grow during the start-up period, when
they are most vulnerable. This assistance comes
in the form of mentoring, networking, funding
and access to physical facilities. The incubation
process improves the survival rate of start-up
companies by assisting them to become financially
viable, usually within two to three years. Incubation
also creates a synergistic environment where
entrepreneurs can share learning, create working
partnerships and act as enablers to access
markets and resources.
• Effectiveness of incubators is a
matter of perspective
The broad question of whether incubation works depends on one’s perspective.
If you see incubation as a need to provide
some form of support to early stage businesses and encourage entrepreneurship,
then South African incubators are providing
some benefits to the community. If you see
incubators as enablers for the creation of
hundreds of South African ‘Googles’, then
incubation in South Africa is not working.
Effective incubation requires the selection
of the right entrepreneurs through processes that target high-impact1 businesses and
high-impact entrepreneurs.
• The Small Enterprise Development
Agency (SEDA) case study
SEDA is an agency supported by South
Africa’s Department of Trade & Industry.
22
The guidelines it has to deliver on are very
specific:
1. Ensuring growth
2. Creating better equity in the economy
3. Supporting employment creation
On the criteria of growth, equity and employment, SEDA’s 27 incubators are phenomenally successful as a vehicle for
supporting small enterprise development.
However, the drawback, in South Africa as
in other emerging countries, is that incubation is expensive. It is expensive because
good incubation deploys large amounts of
resources to support few truly promising
entrepreneurs.
In addition, an intensive selection process
needs to take place to determine which
entrepreneurs or businesses should be allowed to receive incubator services.
In assessing the success of incubators,
the key criteria for survival rates need to
be analysed. Generally small businesses or
start-ups fail at a rate of about nine in ten
in the first two years of operation. Within
the 27 SEDA incubators, the survival rates
are in the region of 84% to 97% in the first
two years of operation depending on which
incubator it is. Post-graduation from the incubator, the numbers do come down but
they are still in excess of 70%.
In terms of wealth creation, the 200 companies incubated by SEDA generated a
total turnover in excess of R129 million,
with about 10 000 jobs created in 2008.
These numbers were achieved largely due
to SEDA’s networking and lobbying in support of the incubated companies to secure
government business.
In assessing
the success
of incubators,
the key criteria
for survival
rates need to
be analysed.
Generally small
businesses or
start-ups fail at
a rate of about
nine in ten in the
first two years
of operation.
Within the 27
SEDA incubators,
the survival rates
are in the region
of 84% to 97%
in the first
two years
of operation
depending
on which
incubator it is.
The one area where SEDA is failing is in Initial Public Offerings (IPOs). In the past six
years, SEDA has not had one IPO, whereas
23
Incubators & Sme Support
The Entrepreneurial Dialogues
Maxum, an incubator at the Innovation Hub
supported by the Department of Science &
Technology, has had two. This is an indication of the type of companies that are selected by these respective incubators.
SEDA has a broad public mandate and
therefore cannot be too selective about
the companies it supports. Maxum, on
the other hand, has a much more specific
selection process; it targets high-growth,
high-potential businesses with a high level
of technology usage. Given South Africa’s
historical context, the outcome of Maxum’s
selection criteria is often that the companies
selected are primarily white-owned companies with a higher level of skill and expertise
than the SEDA-incubated businesses.
From a
functional
standpoint, the
real value of
incubators lies
in entrepreneurs
having access
to specialised
services such
as legal and
financial at the
early stages of
their businesses
when they
cannot afford to
acquire those
services directly.
24
• Access and visibility of incubators
– targeted communications
In South Africa, incubators have not had
the desired accessibility, prominence or
openness to young entrepreneurs. They
could be playing a more active role to help
entrepreneurs overcome the business challenges they face.
The visibility of incubators to entrepreneursat-large remains an issue. Communicating
as a medium for incubators is expensive and
thus prohibitive. Another challenge is that
incubation is not appropriate for all types of
business; therefore it needs to be communicated in a targeted manner. An incubator
has the capacity to efficiently service 40 to
60 businesses a year, which means that it
has to be highly focused in terms of how it
reaches the desired target market. In South
Africa, the majority of incubators operate
in specific sectors such as, ICT, Stainless
Steel, and Biotechnology.
• Service offering of incubators –
peer support and experts
Incubators provide the basic infrastructure,
learning, mentoring, executive coaching,
functional support, networking and sales
opportunities entrepreneurs need. However, the driver of success for incubators is
the capacity to help entrepreneurs gain access to peer-to-peer learning communities.
Good incubation is also about fostering
communities of like-minded entrepreneurs.
From a functional standpoint, the real value of incubators lies in entrepreneurs having access to specialised services such
as legal and financial at the early stages
of their businesses when they cannot afford to acquire those services directly.
Another important value-add of incubation is the mentoring and coaching where
entrepreneurs have access to people who
can act as sounding boards, look at their
businesses critically and offer invaluable
advice. Incubators are geared to assist in
the elimination of key barriers to entry that
entrepreneurs face.
• Required skills within incubators
to serve small businesses; high
skills are expensive
One of the challenges that incubators face
is attracting technically skilled employees
who can best assist the entrepreneurs.
Small businesses tend to have multiple
problems at any given time, with many
pressing issues to deal with simultaneously.
Handling such complexity requires highly
qualified people. Thus, incubators must
have sufficient financial resources to employ
qualified and highly skilled employees. It is
imperative for incubators to be financially
viable and able to employ highly qualified
employees who can provide entrepreneurs
with very scarce skills.
A key measure of success is the incubator’s own growth which demonstrates its
ability to deliver value to SMEs. In the United States and Britain, most incubators are
attached to tertiary institutions that subsidise the cost of the senior skilled personnel.
In South Africa, when incubation services
are offered to SMEs with a limited ability to
pay, the government should get involved
and find ways to subsidise these costs for
eligible SMEs. However, if the incubation
is being offered to high-potential, highgrowth SMEs, these SMEs should have
greater ability to pay, which, in turn, will
improve the sustainability of the incubator.
There is no doubt that with the assistance
of government funding, incubators can become more effective in delivering services
to SMEs without the pressure of having to
worry about their own financial viability.
RECOMMENDATIONS
& INSIGHTS
• Greater understanding of the
service offering of incubators
Entrepreneurs need to have a very clear
understanding of what their business requires before seeking incubation support. Part of the entrepreneurial process
is about being resourceful in seeking the
most appropriate solutions to specific
problems. As incubation ultimately results
in the creation of a business partnership, it
is absolutely vital for entrepreneurs to do
the necessary research into the various incubation options available.
• The role of the education system
in preparing entrepreneurs for
incubation
One of the challenges of South Africa’s
education system is the poor quality of
entrepreneurial skills training at schools.
There may be two ways to address this
problem. One is to expose tertiary students to existing incubators in their communities, thereby making them aware that
help is available should they decide to
start a business. The other is to provide
entrepreneurial skills training at the tertiary
level to elevate the quality of entrepreneurs
that come into incubators.
• Access to skilled mentors and
coaches
Gaining access to more skilled mentors
and coaches for entrepreneurs would
greatly enhance the ability of incubators to
become more impactful. However the cost
of skilled mentors and coaches is currently
prohibitive; thus limiting the accessibility
that entrepreneurs have to them.
• Programmes to address the
lack of self confidence amongst
entrepreneurs
Entrepreneurs should ideally be people
with very strong self confidence. However,
many people in South Africa lack the self
confidence and faith in their own skills and
ability to thrive as entrepreneurs. This is a
product of South African history and culture
which needs to be addressed through programmes or interventions.
OTHER ASPECTS
TO CONSIDER
•A
ccording to GEM research worldwide,
necessity entrepreneurs employ, on average, less than one person whereas
new opportunity entrepreneurs tend to
employ between four and five people.
The global norm is hence for funders of
incubators to prefer assisting opportunity entrepreneurs who are more likely to
create employment.
In South Africa,
when incubation
services are
offered to SMEs
with a limited
ability to pay,
the government
should get
involved and find
ways to subsidise
these costs for
eligible SMEs.
However, if the
incubation is
being offered to
high-potential,
high-growth
SMEs, these
SMEs should
have greater
ability to pay,
which, in turn,
will improve the
sustainability of
the incubator.
NOTES
1. High impact refers to entrepreneurs and businesses that have the
highest potential for wealth and job creation.
25
Access to Skills
The Entrepreneurial Dialogues
ACCESS TO SKILLS
OVERVIEW
Small to medium businesses in South Africa
view availability and accessibility to skills as a
key competitive advantage. Small businesses
need these fundamental resources to build
and grow their operations. In entrepreneurial
environments, it is essential to attract talent
and ensure that their potential is maximised,
so that they can effectively respond to the
complexities associated with operating a
business. Entrepreneurs have the added
challenge that they are not able to remunerate
employees as competitively as large corporates
are. Therefore, crafting a compelling employee
value proposition becomes critical in the
attraction and retention of talent.
26
KEY POINTS OF DISCUSSION
employees with positive energy.
• Attracting top talent into an
entrepreneurial company
The key to attracting talent is to let them
buy into the values, mission and promise
of the business. This approach can sometimes be more effective than focusing solely
on financial rewards and it ensures that existing and future employees walk the growth
path with the entrepreneur. It also encourages a sense of responsibility towards the
business, and discourages the temptation
to move to other companies for bigger
packages. It is therefore essential that entrepreneurial companies have an alignment
between their values and the values of the
individuals they are looking to attract.
As many start-up businesses cannot afford
to pay high salaries, retention of talent remains a challenge and a company’s vision
alone, however compelling, is not enough.
Employees with the correct skills are highly
sought-after and well remunerated. This
challenges small businesses to become
creative in sourcing and developing the
skills they require.
When trying to build a scalable business,
it is important for entrepreneurs to create
a culture in which employees are able to
live out their own dreams and aspirations.
When this is done successfully, businesses
can create a brand that gathers momentum through word of mouth as being an
employer of choice. The greater the impact
entrepreneurs can have on the people they
engage with, the more likely these people
will contribute to the success of the organisation. This will also show the levels of employee commitment as current staff members will encourage their friends to come
and work for the company.
• Retention of top talent in an
entrepreneurial company
It is inevitable that employees will leave at
some point but in the meantime, the culture of an organisation is critical for retention. It should be noted that only talented
employees, those who have a sense of belonging and add value need to be retained,
and attrition is sometimes good. Attrition
allows young organisations to try-and-test
and to improve their ability to recruit new
Another challenge for small businesses is
that due to capacity constraints, they often neglect to properly inform new hires
about the company’s culture and values,
set key performance areas and review key
performance areas on a regular basis. It is
therefore important for entrepreneurs to be
cognisant of the different methods of rewarding. Various models of financial incentives exist, which can be effective retention
tools. For example, younger employees
are concerned with growth and development opportunities which small businesses
may not be able to provide, whereas older
employees may worry more about health
benefits and other family related aspects of
their compensation.
It is inevitable
that employees
will leave at
some point but
in the meantime,
the culture of
an organisation
is critical for
retention. It
should be noted
that only talented
employees,
those who
have a sense of
belonging and
add value need
to be retained,
and attrition is
sometimes good.
It is also essential that entrepreneurs familiarise themselves with South African labour
legislation, in order to better understand
their rights as employers. This will empower entrepreneurs to manage their workforce
better, especially with regard to non-performing employees. Retaining incapable
employees can have a devastating impact
on a small business, therefore following
correct processes of dismissal is critical.
Entrepreneurs need to be mindful of the
overall employee experience they create (or
project to the outside world) for employees.
That is what prospective, current, and exemployees carry in their hearts and psyches;
27
Access to Skills
The Entrepreneurial Dialogues
and these perceptions are what create the
‘brand-image’ employers broadcast to their
community. In turn, a company’s reputation
is ultimately what drives its propensity to attract an ongoing stream of talent.
It is a missed
opportunity for
entrepreneurs
not to realise
the value of
leveraging
complementary
skills to
grow their
businesses.
Allowing
participation in
the workplace
and enabling
employees
to rotate
between roles
brings a fresh
perspective
to particular
problems faced
in the business.
28
• Developing an entrepreneurial
skills base – creativity, innovation,
risk taking and opportunity finding
It is important for companies to find a balance between allowing enough time for
creativity and innovation, and delivering on
the core requirements of the business. The
‘scarcity mindset’ or state of mind, where
entrepreneurs become obsessed with the
notion that ‘resources are fixed’, often prohibits creativity. The idea that a person can
only succeed at the expense of somebody
else’s failure permeates many companies.
This can be a big inhibitor for employees to
understand the value of collaborating in order to create great products and services.
The ‘collaboration concept’ is also lacking
in entrepreneurs. It is a missed opportunity
for entrepreneurs not to realise the value
of leveraging complementary skills to grow
their businesses. Allowing participation in
the workplace and enabling employees to
rotate between roles brings a fresh perspective to particular problems faced in the
business.
Mentoring and coaching for middle management staff within an entrepreneurial
company is often lacking. Softer skills, such
as independent problem solving, the ability
to take initiative and action orientation are
often not harnessed and sufficiently developed. These skills could contribute to the
success of the organisation.
Many teachers or lecturers in entrepreneurship have limited experience in the entrepreneurial process. This results in their
teaching-offering being of an extremely
theoretical nature.
RECOMMENDATIONS
& INSIGHTS
• Employee incentives that drive
retention
Attracting and retaining employees go
hand-in-hand. When companies incentivise
employees to innovate and this innovation
results in increased profits, entrepreneurs
should reward them accordingly. The impact is that employees will have a direct line
of sight to the company’s bottom line which
will further motivate them.
• Flexibility in the structuring of salary packages
To compensate for a small business’s inability to offer comprehensive employee benefits, entrepreneurs should explore a cost-tocompany approach. This allows employees
to have the flexibility to structure their packages according to their needs and requirements. For example, younger and healthier
employees may want to spend less of their
earnings on benefits such as medical aid
and pension and have higher take home
salaries, whereas older employees may
want to have a greater portion of their earnings allocated to retirement benefits.
• Employee recognition programmes
Recognition structures are an important
tool to increase retention. When companies have defined programmes to reward
certain behaviours, those behaviours will
spread within the business. There is no
substitute for challenging, quality work
content which can be linked to a moral
purpose, especially for knowledge workers. Small businesses have the latitude to
positively impact working conditions and
create environments that are more attractive than corporate environments. This has
value that money cannot buy. Entrepreneurs can craft employee value propositions that are distinctive and effective in
attracting and retaining talent.
• Opportunity for broad functional
exposure within small businesses
Entrepreneurs should market the opportunities that exist in small businesses for
younger employees. Entrepreneurial com-
panies provide an environment for younger
talent to expedite their learning due to their
exposure to different functional areas.
• Ongoing scouting approach to
find talent
It is important for employers to constantly
be on the lookout for talented employees,
even though they may not always be actively hiring. This will ensure that entrepreneurs
are continuously on the pulse of the labour
market. They should also capitalise on their
networks and use the referral system to incentivise staff in their search for talent.
• Professionalism in the recruitment
process
The recruitment process must be done in a
manner that conveys professionalism about
the company. This will improve the reputation of the company and position it as an
employer of first preference.
• Requirement for specific labour
laws to serve small businesses
The labour laws in South Africa have to be
more accommodating to small businesses.
Currently, the labour laws are applied indiscriminately to large listed companies and
small start-up entrepreneurial ventures.
These laws are onerous and sometimes
prohibitive to small businesses.
To compensate
for a small
business’s
inability to offer
comprehensive
employee
benefits,
entrepreneurs
should explore a
cost-to-company
approach.
This allows
employees to
have the flexibility
to structure
their packages
according to
their needs and
requirements.
In summary, a balance between financial
reward and culture-values is how small
businesses can gain access to skills. Entrepreneurs need to look at attraction and retention holistically and remember that each
individual is unique. In addition, a work
environment needs to be created where
employees can exchange ideas and where
individual achievement is celebrated. Human capital is the most important aspect of
a business and ultimately contributes more
than anything else to the success of small
ventures.
29
Acknowledgements
The Entrepreneurial Dialogues
EDITORS
Endeavor
•M
alik Fal:
MD, Endeavor SA
•T
umi Sefolo: Search
& Selections Manager
•A
ffiong Williams:
Entrepreneur Services
UCT
• Mike
Herrington:
UCT & GEM Report
Edge Enterprise
Development
• Jason Goldberg
FNB
•M
arcel Klaasen:
CEO, FNB Biznetwork
SPONSORS &
ORGANISERS
FNB
• Iris Dempsey:
CEO, FNB Commercial
Banking & Endeavor board
member
•M
arcel Klaasen:
CEO, FNB Biznetwork
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A
shley Mathura
D
hatchani Naidoo
R
anjith Baliram
H
eather Lowe
D
avid Milligan
E
lizabeth Malumo
S
haun Edmeston
Michael Vacy Lyle
H
oward Arrand
P
aulo Dos Santos
K
irsten Edwards
C
harmaine Rugnat
Endeavor
SABMiller
•M
alik Fal:
MD, Endeavor SA
•N
icola Jowell:
SCI Manager
•F
iona Pieterse:
Office Manager
•K
endel Falkson:
Public Relations
• Megan
de Villiers:
Marketing
Communications Manager
• Nontokozo
Hlangweni:
Marketing
Communications
Administrator
Kauffman Foundation
• Gordon
Brown:
British Prime Minister
•C
arl Schramm:
President & CEO,
Ewing Marion Kauffman
Foundation
GIBS
•A
lex Antonites:
Chair for Entrepreneurship,
University of Pretoria
• Justinus
Adriaanse:
Senior Programme
Manager Entrepreneurship
MBA, GIBS
Try Africa
•M
ary Brooks:
Founder of Try Africa
Allworld Network
• J uliet Pitman:
Entrepreneur Magazine
Writer, Myraid
• Deirdre Coyle
MEDIA
PRIMEDIA
•W
illiam Kirsh:
CEO, Primedia
• Trevor
Ormend:
Executive Chairman,
Primedia
•H
eather Visser:
CSI Manager, Primedia
ETV
•M
ichelle Kirby:
Group Marketing &
Corporate Social
Investment of Etv
• Marcel
Golding
Chief Execuitve Officer, Etv
• Iris Dempsey:
CEO, FNB Commercial
Banking
•B
heka Manana:
BM Manana
Culture of
Entrepreneurship
• Ian Lourens:
Onelogix
•K
yle Petersen:
SPG
•K
errin Myres:
WITS Business School
•M
alik Fal:
MD, Endeavor SA
•C
harles Wyeth:
Seda
Capital & Endeavor Board
Member
• L ebo Gunguluza:
•M
alik Fal:
MD, Endeavor SA
• J ason Goldberg:
Access to Capital
•M
ike Herrington:
UCT & GEM Report
Enterprise
Development
•H
lumelo Biko: Circle
•X
olani Mbanga:
Allan Gray Orbis
•G
uy Lieberman:
Genius Mnywabe
•A
drian Gore: CEO,
Discovery & Endeavor SA
Chairman
• Martin
Feinstein:
The Business Place
•C
harles Wyeth:
Seda
Draft FCB
•A
lec Hogg: Editor-in-chief,
Money Web
•A
llon Raiz:
Raizcorp
•H
lumelo Biko:
Circle Capital & Endeavor
Board Member
•D
eirdre Coyle:
Allworld Network
PANELISTS &
FACILITATORS
Headline Panel
Incubator /
SME Support
SABEF
Edge Enterprise
Development
• Itumeleng
Kgaboesele:
EO
•A
shley Mathura:
FNB
• L ia Vangelatos:
•K
eet van Zyl:
HBD
Access to Skill
•K
umaran Padayachee:
Spartan
•N
oah Greenhill:
JSE
•M
ike Herrington:
UCT & GEM Report
•F
uzlin Levy-Hassen:
IDC
Anglo Zimele
• J essica Hastings:
ALA
•P
hrisilla Kohary:
Remchannel
•R
ob Dennison:
Trainiac
•D
r Alex Antonites:
Chair Entrep @ UP
• Justinus
Adriaanse:
Senior Programme
Manager Entrepreneurship
MBA, GIBS
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Agnes Sibanda
Aka Jude Chinedu
Amelia Cilliers
Amos Maphongwane
Andrea Böhmert
Andrew Aitken
Andrew Honey
Andrew Laing
Andries Volschenk
Angel Jones
Aris Alexandrou
Arnd Herrman
Ben Alberts
Bereta Dereje
Beulah Thumbadoo
Blake Mosley-Lefatola
Charles Venter
Cheryl Reddy
Chigbo Onyinye Samuel
Chris Charalalmbous
Chukwumzie Chigozie
Colette Symanowitz
Craig Allen
Daniel Hatfield
David Murray
Deirdre Coyle
Deon Wolfaardt
Dianne Regisford-Guèye
Donald Gips
Elizabeth Zambonini
Estelle Venter
Ester Njiro (Dr.)
Ettienn Smit
Faith Mamiala
Férid M’Hedhbi-Mazlut
Francois Baird
Gareth Rees
Gavin Symanowitz
Giles Purbrick
Glen Ansell
Greg Maloka
Gugu Mgudu
Gustav Praekelt
Heather Lowe
Isaac Mogajane
Joanita Cillie
Joel Ikem
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JP Villion
Justinus Adriaanse
Keith Brebnor
Kgosi Monametsi
Lance Quiding
Laura Machaba-Abiodun
Lebohang Poonyane
Leila Akahloun
Lindile Xoko
Louis Janse van Rensburg
Lucy Moteka
Mandla Nkomo
Mandla Mazibuko
Marion Pearce
Martelize Smit
Matthew Jankelow
Maury Peterson
Maxwell Nyamajiwa
Michael Bean
Michael Cupit
Michelle Robertson
Monna Mokoena
Musa Maphongwane
Nadira Peer
Natalie Killassy
Nick Ristic
Nicole Sykes
Nobis Nora Uchenna
Norden Thurston
Nwese Bran Emeka
Ochulor Kinsley Eyinnaya
Okuma Martins Chidubem
Omeokwe Roseline Mercy
Onyemechi Ezekiel Ndidi
Onyilimba Angel Chike
Orrin Klopper
Peter Doubell
Peter Golding
Phumlani Masilela
Rachel Adams
Randall Kempner
Rezaan Daniels
Richard Britten-Kelly
Ricky Solomons
Rob Herrewyn
Robert Lane
Roy Blumenthal
Sarah Helen Taylor
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ean Walker
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ekutudi David Motala
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hawn De Bruyn
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hireen Chengadu
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ipho Moshoane
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tephen Langton
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tephen Timm
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ure Kamhunga
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usan Higgo
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ebogo Skwambane
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erence McPhail
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habang Skwambane
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hendo Ratshitanga
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heolen Moonsamy
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hulile Khanyile
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inashe Ruzane
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arren Lieberman
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olandi Janse van
Rensburg
•Z
anele Xaba
31
The Entrepreneurial Dialogues
32
Notes
33